Why Silvergate Capital Finished Lower on Wednesday

What Happened

Silvergate Capital (SI -1.28%) had a volatile day on Wednesday as its share price dropped 5% in early trading to $57.75, only to roar back to $61.65 at around 11:14 a.m. ET. It sank a bit from there and ended the day down 1.19% at $59.56.

Silvergate, a leading bank for the cryptocurrency industry, got hit by the latest Consumer Price Index (CPI) report on inflation and an analyst downgrade.

So what

The CPI report for June came on Wednesday and it was more bad news, as the leading indicator of inflation rose 9.1% year over year, higher than the anticipated 8.8% gain. That is the highest year-over-year gain since November 1981. For June alone, inflation jumped 1.3%, higher than the expected 1.1% gain.

Cryptocurrency investments, in particular, took the news hard as Bitcoin (BTC 4.17%), Ethereum (ETH 6.24%), and Dogecoin (DOGE 2.17%) were all down in morning trading, taking Silvergate down with them. The high inflation numbers signaled more aggressive interest rate hikes, which is generally not good for cryptocurrency investments as it would lead to a flight to safety, such as bonds. 

Now what

Silvergate will be reporting second-quarter earnings on July 19, so that is a date for investors to circle on their calendars (Corporate Event Data provided by Wall Street Horizon.) Banks are among the first to report earnings each quarter and their performance is often a bellwether for other companies.

Analysts are not expecting much, as Morgan Stanley lowered its price target on Monday from $88 to $77, keeping it at equal weight. Analyst Manan Gosalia said his team is cutting earnings estimates for U.S. banks and consumer finance companies as recession risks rise, according to The Fly. B. Riley also lowered quarterly earnings expectations for Silvergate this week, dropping it to $1.47 per share from $1.56 per share.